Who will pay for the right to buy?

In their general election manifesto, the Conservatives promised to ‘extend the Right to Buy to tenants in Housing Associations’. More than 1500 housing associations, all registered charities and some, like Peabody and Guinness, over a century old, would have to let tenants buy their houses at discounts of up to £103,000 each. The cost would be met by forcing local authorities to sell their most valuable council houses. After paying off councils’ debt, in theory these sales would not only provide enough to compensate housing associations for their losses but also allow replacement homes to be built both for them and for the councils.

In practice, no one knows if the numbers will stack up: the financial details were removed from the Conservatives’ website shortly after they were put up and official figures haven’t yet been produced. And there are two institutional hurdles. The first is that, with all this government interference, housing associations might be reclassified by the Office for National Statistics as public sector bodies and their £63 billion debt brought onto the government balance sheet. Oddly, Cameron and Osborne seem relaxed about this, both of them talking about associations being part of the public sector while also complaining that they are underperforming.

The second hurdle is the House of Lords. It was the peers who stopped Thatcher in the 1980s from extending her right-to-buy scheme to include associations as well as councils, by defending their status as independent charities. With their lordships already grumbling, a protracted parliamentary battle followed by potential legal challenges has looked inevitable.

The barely veiled threats and the prospect of being classed as public bodies persuaded the National Housing Federation (the housing associations’ trade body) to offer the government a ‘voluntary’ deal to sell homes to tenants in return for a guarantee that they’ll be replaced. The deal was agreed in advance with the government towards the end of last month, but most associations were unaware of the details. In a twist that ensured the associations barely had time to consult their boards, let alone their tenants, the government said they had to accept or reject the offer by 5 p.m. on Friday 2 October. However reluctantly, housing associations voted overwhelmingly in favour.

Councils are left with the prospect of being forced to sell higher-value homes to fund the housing association deal with, as yet, no equivalent guarantee that the houses they sell will be replaced. Even if they are, unless the government puts in new money (which it has so far refused to do), the only way the scheme can be made to add up is by councils (and their tenants) taking on extra debt. Not surprisingly, London boroughs have called for the deal to be suspended. According to Shelter, Kensington and Chelsea will be worst hit – it would have to sell nearly all its council houses – but several other London boroughs would be badly affected, along with places as different as Cambridge and Leeds.

The wider issue is the supply of housing at genuinely affordable rents. Until recently, councils and associations have balanced their books by charging rents that, as a proportion of average earnings, are half those in the private market. But this is changing rapidly, as associations in particular are being forced to push rents on newly built homes up to 70 per cent or more of private landlord levels. Most of the houses that will be sold are currently let at the lower, 'social' levels; any replacements will be let at closer to market rents. But whether the sold-off houses will be replaced at all is a moot point. When the last government made it cheaper for tenants to buy their council houses, it promised to build a new one for every extra house sold. Three years later they have managed to replace only one in nine.

Comments

Markets function on the basis of supply and demand. The higher the demand for housing and the more restricted the supply, the better (i.e. the more profitably) the market functions. That's why the need for the right amounts of housing, of the right kind, in the right places, at the right prices, will never be met by the private sector. The overriding interest of the private housebuilders is to ensure that there is never enough housing.

8 October 2015
at
1:41pm

mototom says:

"When the last government made it cheaper for tenants to buy their council houses, it promised to build a new one for every extra house sold. Three years later they have managed to replace only one in nine."

You're right, although I was just repeating the most recent promises, made when right to buy was 'reinvigorated' in April 2012. The Treasury has always required councils to pay a proportion of the receipts across to them, which they used to promise was recycled into more housing investment. However, under the Coalition the Treasury changed its tune, and said it was no longer possible to hypothecate the receipts to a particualr purpose. Incidentally, Grant Shapps also promised that when council housing became financially independent, also in April 2012, it would remain so. The new goverment is already going back on that promise after only a few months in office, by restricting council rent increases and - as I mention in the blog - requiring councils to sell their best properties and had over most of the proceeds.